Embraer Bets on Defence for Future Growth

Embraer, the Brazilian plane maker whose success has made it a symbol of Brazil’s often overlooked hi-tech expertise, found itself in an unusual position in 2009.

Brazil’s economy bounced back from the crisis faster than almost any other big nation but that had little effect on the São Jose dos Campos-based firm. More than 90 percent of Embraer’s business comes from abroad and so impressive domestic consumption meant little. The company laid off 20 percent of its workforce.

Now, its president and CEO says it is altering its focus towards giving military aircraft a larger portion of its portfolio.

“The tendency is that the defence and executive sectors will grow to be more important than they are today,” Federico Fleury Curado told me in October for this Financial Times piece. “In five years I see the commercial sector as being worth 50 percent of our business, down from between 65 and 70 percent now. Executive will go from 15 percent to 30 percent, and defence and services will go from about 10 to 15 percent to 20 percent. Right now we don’t have the best balance.”

One new option comes with the production of KC-390 transport and cargo planes for the Brazilian military. The planes are expected to enter service in 2015. Another option is increased production of Tucano trainers and Supertucano fighters.

Embraer has made and sold around 100 Supertucanos to five Latin American nations outside Brazil and has orders for 60 more. It is also producing dozens of military reconnaissance aircraft for patrolling the Amazon and is working with India to produce similar planes for the subcontinent.

But the biggest boon will come when Brazil finally decides from whom it will purchase 36 state-of-the-art fighter planes. The 5 billion Euro negotiations are in the final stages with French Rafale fighter favourite to win out over the Boeing F-18 Super Hornet and the Saab-built Gripen.

Brazil has made any deal contingent on the transfer of technology, a fact that is of enormous importance to Embraer. Although the company would likely build only small parts of the winning plane, the technological gains would be vital in taking in helping Embraer broaden its expertise.